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Long-term Investing: Four Lessons for Staying on Course

March 17, 2020


It can sometimes be difficult for long-term investors to stay the course during tough periods of market volatility and uncertainty. Some decide that a more volatile environment requires a more active, "nimble" strategy. Others flee to what they believe are "safe" investments. However, we believe following a long-term investing plan is a more strategic approach and may perform better than more nimble efforts.

1. Review your portfolio regularly.

It's important to review your investments regularly and rebalance your portfolio when appropriate. Staying invested doesn't mean being frozen in place. Regular portfolio maintenance helps to keep your portfolio from veering off course, and it also gives you the opportunity to keep your portfolio aligned with your long-term financial goals.

2. Diversify your portfolio among quality investments.

Select an appropriate mix of quality investments rather than guessing which ones will perform the best. Consider including international equity investments, as well as domestic large-, mid- and small-cap stocks. And consider adding high-yield bonds, as well as investment-grade bonds, to help improve the diversification of your fixed-income portfolio.

3. Avoid owning too much of a single investment.

Don't try to guess which individual investments will perform best. Even when the outlook for a company or industry is favorable, it's impossible to say with any certainty which stock has the most "upside." Avoid overconcentration, which results in taking too much risk in a few individual stocks or bonds. Diversifying your equity and fixed-income investments can help reduce your portfolio's volatility.

4. Stay invested.

Prepare to stay invested as stocks become more volatile. Sticking with the investments you own today is one of the most important lessons to hold on to, because those who exit for the sidelines usually fail to reinvest. As we all know, you have to be invested to participate when stock prices rise. You'll also be invested when they fall, but, historically, stocks have risen for more months than they have fallen – even since the end of 19991.

Buy-and-hold is a simple strategy, but it’s not always easy to execute. It means staying invested when it feels like you should sell and doing nothing exactly when you most want to make changes. While some may criticize a long-term approach as unsophisticated, it’s a strategy that typically outperforms more nimble efforts2. As a result, it's much more strategic than you may realize.

Whether you're new to investing or have been investing for years, you can always talk with an Edward Jones financial advisor to discuss your long-term financial goals.

Important information:

1 Source: Morningstar Direct, 5/30/2017. Past performance of the market is not a guarantee of what will happen in the future.

2 Source: Quantitative Analysis of Investor Behavior, 2017,” DALBAR, Inc.” Annualized return for the past 20 years ending 12/31/2016. This study was conducted by an independent third party, DALBAR, Inc. A research firm specializing in financial services, DALBAR is not associated with Edward Jones.

Investing in equities involves risks. The value of your shares will fluctuate, and you may lose principal.

Small- and mid-cap stocks tend to be more volatile than large-company stocks.

Special risks are inherent in international investing, including those related to currency fluctuations and foreign political and economic events.

Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease and the investor can lose principal value if the investment is sold prior to maturity. High-yield bonds are subject to greater risk of loss of principal and interest, including default risk, than higher-rated bonds.

Past performance is no guarantee of future results.

Diversification does not guarantee a profit or protect against loss. You should make investment decisions based on your unique objectives, risk tolerance and financial circumstances.

More resources:

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